QA with real estate expert Don R. Campbell

When it comes to real estate information and research, few people are as well read and objective as Don Campbell. NextHome gets his take on what’s happening in various markets across Canada.


NextHome: You recently said that Ontario’s Fair Housing Plan would cause five consequences: higher tenant turnover and rents; market fear and overreaction, due to the Foreign Buyers’ Tax; more long-term investors exiting the market; more speculators exiting the market; and purpose-built rentals put on hold. What’s your batting average so far?

Don Campbell: Although people like to hear forecasts of what’s going to happen next week or month, our focus has always been to analyze the long-term impact of policies, economies and demographics on real estate markets. Real estate and property markets always ebb and flow, which means if an investor or homeowner is making a “buy/sell” decision based on one report, they don’t understand how markets work. However, there are “policies” that can throw a market off of its cycle trend, despite all the background economic and demographic drivers lining up. These policies are defined as “market influencers,” and because they are random and often politically based, they can have dramatic and sometimes irreversible negative unintended consequences on the health of a market. Ontario’s Fair Housing Plan is one of those. Purporting to help renters, many of the policies within the bill will eventually have a negative impact on renters and will not make housing more affordable in the target regions.

NH: No one seems to win in the above scenarios, so what’s the point of the Fair Housing Plan?

DC: Although the name of the bill is “Fair Housing Plan,” the unintended consequences won’t be pretty for anyone except one small group, the politicians who are “appearing” to be doing something. Given the fact that most people won’t read the full bill, nor even dive beyond the headlines, this will probably work for that group, while the rest have to live with the long-term consequences. Possible scenarios that are very likely over the coming years – none of them positive – include:

1. The adoption of this plan leads to current landlords quickly raising their rents to at or above-market, so they do not find themselves locked-in at a below-market rent for years (many landlords keep their rents below market because they have a strong relationship with, and appreciation for, their long-term tenants), but given the new rules and continuing increase in interest rates, this may become an untenable situation, sadly.

2. According to the Ontario government’s own numbers, there are now more than 120,000 people in the Greater Toronto and Hamilton Area who own more than more residential property. This means that even if only 75 per cent of those properties are rentals, independent citizens are providing 90,000 needed rentals in the area. That’s much more than any REIT or developer has been providing with rental specific buildings. Under the new rules, many of these independent owners will end up choosing to exit the market, selling their units and thus lowering the number of available rentals.

3. A lower supply of rentals will also occur, because with the new caps on market rental increases, many major developers have taken rental specific buildings off their immediate plans due to the economics.

4. The dramatic increase in costs associated with operating a quality, clean and safe rental will also reduce the number of people willing to own and operate such properties. This will lead to poorer rentals and more landlord-tenant disputes.

5. As interest rates rise and the federal government mandates tighter controls on mortgage qualification, there will be fewer opportunities for Canadians to buy a home, especially the large cohort of Millennials who are entering this phase of their lives. This is true no matter if the average price in the market slips or not. This, of course, then leads to more renters, right as the Ontario government puts in policies that will reduce the number of rentals available.


NH: Where are the opportunities for investors – and primary homebuyers – in Ontario now, given all this change and uncertainty. Ottawa, for example, has long been a slow and steady performer…

DC: As with all market shifts and changes, opportunities will arise (unless further political action is deemed necessary). The hunt for yield will continue for investors, and capital has a way of finding places to deploy – Ottawa being one of the more obvious ones, especially along the new LRT lines. Also look in areas of Ontario where there is committed GO Train and post-secondary expansion.

NH: We’re supposed to see a National Housing Strategy at some point this year. What do you expect from it?

DC: Given the “optically driven” policy decisions we are witnessing across the country, it is really anyone’s guess what the announcements will be. But when the policies are announced and details released, we will be analyzing it in great detail.

NH: You have always said that the health of any real estate market depends on the economic fundamentals. There’s been a recent spike of activity from foreign buyers, and therefore prices, in Montreal. Does the economy and growth there actually warrant such activity, or is it more of a case of these buyers moving their capital from Vancouver and Toronto, to Montreal? How do you see this playing out?

DC: Montreal has quietly been a magnet for foreign capital, especially European, for many years. But now that Canada has become a “safe haven” for capital – not because we are better than before, but because many regions of the world have become more volatile – capital flow for both real estate and our companies is on the rise. When the Foreign Buyers’ Tax was implemented in Vancouver, that capital moved to other regions for a while, but has now come back. The same will prove true for GTHA – a lull as the air clears but then the flow will return. Montreal, with no foreigner tax, is just another place capital is finding as a resting place.

NH: Alberta seems to be approaching a recovery. How long will it take to turn the corner, and which markets will show decent growth first?

DC: Alberta had an amazing last couple of decades of economic and demographic growth. In fact, they still have the highest average weekly wage in the country, despite it dropping significantly over the last two years. When you combine the decline in oil prices, the increase in the discount that Canadian oil is sold at, the inability for eastern Canada to see that buying oil from internationally questionable sources rather than from fellow Canadians, Alberta’s economy has struggled and so has its housing and rental markets. However, Edmonton has been protected from the worst of the downturn and will be the first to recover as the economy begins to re-ignite as its economy is much more diverse than other areas of the province.

NH: It’s been a year since Vancouver introduced a Foreign Buyers’ Tax (and Ontario implemented one recently). What has been the real, overall impact on the market there?

DC: There was the expected lull in activity, especially in the $2 million-plus value category, but that capital has started to flow back in. And given the change in government and the stated goal of reviewing the current tax, we will see a swarm of capital entering the market again to get ahead of any further changes or tightening.

NH: What other issues are emerging that may impact markets in BC?

DC: Affordability of ground oriented units for families will be a growing problem. This will push people further out from the core regions and put a big demand on infrastructure spending (whether it be for light rail or road expansion. This is inevitable. However, we must factor in the government change as a market dynamic to watch. Policies matter, as Ontario is discovering and BC’s new government needs to ensure that it is designing and implementing policies that have a long-term positive impact on renters and homeowners, and to not just make expedient announcements for optical reasons.

The fact is, we live in interesting times, and, frankly, after analyzing markets for more than 25 years, Canada always seems to be living in interesting times.


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